Cash call concerns see JJB shares nosedive

Struggling JJB Sports’ shares nosedived as analysts suggested the Wigan-based retailer may have to seek a fresh cash call after it warned that full-year results would not meet its hopes following poor recent trading. The shares plunged 16.67 per cent yesterday and slid a further 6.25 per cent today to 7.4p after analysts predicted the retailer may be forced to resort to a second rights issue in the space of a year or other measures such as selling and leasing back its headquarters.

Struggling JJB Sports’ shares nosedived as analysts suggested the Wigan-based retailer may have to seek a fresh cash call after it warned that full-year results would not meet its hopes following poor recent trading.

The shares plunged 16.67 per cent yesterday and slid a further 6.25 per cent today to 7.4p after analysts predicted the retailer may be forced to resort to a second rights issue in the space of a year or other measures such as selling and leasing back its headquarters.

The retailer, which came close to administration last year, said sales over the last six weeks had failed to match its expectations despite a major promotional drive.

JJB launched the price offensive for the autumn and Christmas period as part of a bid to protect its "Serious about Sport" turnaround strategy from the impact of challenging trading conditions.

However, JJB said that sales were lower than expected between late September and last weekend after a rise of 13.1 per cent on a like-for-like basis.

This was in line with the trend over the rest of the financial year as JJB said trading conditions were having a negative impact on its expectations. Gross margins were down from 42.2 per cent in the first half of the year to 33.8 per cent.

Despite the company’s peak trading period still to come, City analysts now expect JJB’s losses to be around £40m in the year to January 31 against previous consensus forecasts of £33m.

Analyst Matthew McEachran, of Singer Capital Markets, said: "This is a disappointing update and confirms there are several obstacles blocking JJB’s recovery. "The focus in the short-term has to be on cash generation, in order to avoid a covenant breach and to create reinvestment opportunities back in to the estate.

"The signs at this stage are worrying and … leads to the view that JJB is more likely than before to have to resort to additional cash generating plans (eg HQ sale and leaseback) and possibly another fund raising."

Freddie George, a retail analyst at Seymour Pierce, said he remained concerned about the strength of JJB’s recovery.

He added: "The Serious about Sport strategy is sensible but with competition intensifying and competitors, in particular Sports Direct, adopting similar strategies, we remain sellers of the stock."

Investec said in a note the likelihood of a fund raising had increased as JJB’s net debts have risen to £16.6m from £1.1m in September.

Katharine Wynne, an analyst at Investec, added that JJB’s failure to attract customers into its stores despite its promotional efforts was "ominous" given the prospect of another consumer downturn.

JJB, which last year stayed afloat thanks to a restructuring deal with landlords, required its main lender, Bank of Scotland, to waive a covenant test in order for the promotional push to go ahead.